Economics

Stock market capitalization as reference point for ancient finances

Street sign for Wall Street and Broad Street, the heart of the Financial District of New York City. Image courtesy of Adobe Stock.
Street sign for Wall Street and Broad Street, the heart of the Financial District of New York City. Image courtesy of Adobe Stock.

I am building some reference points for my ongoing learning about ancient finances. (If you couldn’t tell, I’m have a lot of fun. This learnin’ thing is cool.)

Here is the value of all the stock listed on the market in the G-20 economies. This is the total capitalization of the companies in those countries.

Data is from this site. A lot of other sources could be used and other years might give different results. The accuracy of the valuation of Alexander’s loot is only accurate to one or two significant digits. The needed estimates and assumptions will leave any comparisons accurate to only one significant digit. Actually, by the time my calculations are finished, the amounts will probably be accurate to maybe overestimating 20% or perhaps underestimating by 100% or 200%.

Thus, more precision in the market capitalizations is irrelevant.

Amounts are in US dollars and are for 2012: …

Are you richer today than John D. Rockefeller was in 1916? The answer is, um, yes.

Would you trade your place in life today for life occupying the Gould-Guggenheim mansion when it was completed in 1912? Even if a billion dollars was tossed into the trade? Photo by Adobe Stock.
Would you trade your place in life today for life occupying the Gould-Guggenheim mansion when it was completed in 1912? Even if a billion dollars was tossed in to sweeten the swap? I would not make the trade.  Photo by Adobe Stock.

I suggest you are in fact richer today than John Rockefeller was 100 years ago. If it were possible for Prof. Don Boudreaux to switch places with John Rockefeller’s life and even if he could have a billion dollars after he arrived back in 1916, he would not make the switch. He would rather live as a comfortable professor today than be a billionaire 100 years ago.

I agree.

Here are three posts to explain this strange idea: first, what life was like 100 years ago, why Prof Boudreaux would not make the switch, and then why Coyote Blog wouldn’t either.

(This post may seem to be out-of-place on my blog discussing accounting and auditing topics. This discussion is part of my enjoyable research on ancient finances and a related thread of how much life has improved over the last 200 years. Since I discuss finance at this blog, it actually fits.)

An article in The Atlantic on 2/11/16 describes America in 1915: Long Hours, Crowded Houses, Death by Trolley. The article is drawn from a report by the Bureau of Labor Statistics: The life of American workers in 1915If you enjoy this brief discussion, I heartily recommend you read the full BLS report. It is a fun read, but then, I am an accountant.

I will update a few of the stats in the Atlantic article where the author took a shortcut. When I browsed through the BLS report, I noticed some sentences which were repeated nearly verbatim in the article, which is okay since the report is a public document.

A few highlights:

Workers in factories averaged 55 hours a week. The fatality rate across the economy was 61 deaths per 100,000 compared to about 3.3 per 100,000 today.

So, how can we compare today’s wages with 100 years or 2,300 years ago?

What does that tetradrachm from Alexander the Great representing pay for two days of a skilled construction worker represent today? Image courtesy Adobe Stock.
What does that tetradrachm, from the era of Alexander the Great, representing pay for two days of a skilled construction worker, represent today? Image courtesy Adobe Stock.

The following numbers are based on purchasing power parity, which is a tool economists use to compare countries across currencies and across time.

Average income across the planet is now $33 a day, which is also about equal to average income in Brazil today or in the US back in 1941.

Income in places like the US and Sweden are 3 or 4 times the planet average.

Average income per person was about $3 a day from about 1800 all the way back until humans first appeared on the planet.  Dr. McCloskey says daily income sometimes in some places rose to $6 or $8 for a while but slipped back to the $3 range.

For illustration of what $3 per day looks like, consider Haiti or Afghanistan. In those two places, the current PPP income is $3.

So where does that leave us for a comparison? Consider this purchasing power parity analysis.

  • $3 – For all of history until about 1800 average daily income was about $3.
  • $33 – Today average income is about $33 in Brazil or a worldwide average.
  • $132 – Today average income in the US and Sweden is 3 or 4 times higher than the world average. The specific days point is $132 a day in the US in 2011.

Going from $3 to $132 is an increase by a factor of 44.

How much has our economic wellbeing improved from that our of distant ancestors?

A view of economic progress. Ponder the productivity improvement and resulting increase in wealth to go from this:

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

To this:

Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The overall standard of living has increased by a factor of somewhere between 30 and 100 in the last 200 years.

The little side trip in this post and the next will lead me back to my discussion of ancient finances in general and Alexander’s haul from his military campaigns in particular.

Writing in Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, Professor Deirdre McCloskey says it this way:

..in the two centuries after 1800 the trade-tested goods and services available to the average person in Sweden or Taiwan rose by a factor of 30 or 100. Not 100 percent, understand— a mere doubling— but in its highest estimate a factor of 100, nearly 10,000 percent, and at least a factor of 30, or 2,900 percent. The Great Enrichment of the past two centuries has dwarfed any of the previous and temporary enrichments.

Let me phrase that another way. The value of what is enjoyed today by an average person is roughly equal to what 30 or 100 people had two centuries ago. That means the constant dollar value of what is consumed and enjoyed has grown by a factor of somewhere between 30 and 100.

Alexander’s haul from looting Susa, the capital of Persia. Revised estimate of value of one Athenian Talent

Greek silver tetradrachm from Alexander the Great showing Hercules wearing lion skin at obverse and Zeus at reverse, dated 323-315 BC. Image courtesy Adobe Stock.
Greek silver tetradrachm from Alexander the Great’s timeframe, showing Hercules wearing lion skin at obverse and Zeus at reverse, dated 323-315 BC.  A tetradrachm is equal to four drachma. Image courtesy Adobe Stock.

Update:  I have revised my calculations here. Adjusted the value of an Athenian talent from 10 years salary today up to 400 years salary due to the dramatic improvement in our wealth and standard of living in the last 200 years (the Great Betterment). Also adjusted from estimated average wage in the U.S. of $20 an hour to average wage for skilled construction worker of $70,000 per year. That takes the rough valuation from $20 billion to $1,400 billion, or $1.4 trillion. That actually seems to make sense in a very rough way.

Continuing my discussion of a few tidbits of financial information from Alexander the Great’s military campaigns.

When Alexander approached Susa, the capital of Persia, news of his non-stop victories preceded him. Previous cities he captured surrendered before he arrived. That typically spared most citizens their lives and prevented the torching of the city.

Thus, Susa was handed to him without a fuss, except for a huge amount that Darius III carted off well in advance of Alexander’s arrival.

The author looks at the various reports of how much loot was acquired. Integrating the report that is likely to be most reliable with the other reports results in an estimate Alexander capturing a haul of 40,000 talents of uncoined bullion and about 10,000 talents of gold coin. The gold is roughly valued by expressing the amount what it would be in silver value.

Apparently the Persians didn’t cast most of their precious metals into coins, instead preferring to mint what they needed as they needed it.

Revised value of a talent

Multiple changes have shifted the relative value of gold and silver in relation to each other and in relation to their purchasing power. Instead of converting a talent of silver into ounces and converting that to current dollars at current exchange rates, I’ll start looking at piles of money in terms of average days wages.

Warning: I plan to update my valuation of a Talent based on the radical improvement in living standards that has developed since the Industrial Revolution.

Value of 1 ancient Greek drachma and 1 Athenian Talent

Image: Flickr by Carole Raddato
Image: Flickr by Carole Raddato

Image: Courtesy of Flickr by Carole Raddato

If you are curious and want to follow along, I’ll be spending a bit of time looking at some details of ancient finance.

If you are already somewhat familiar, feel free to either roll your eyes as I flounder along or chuckle on how slow I am to catch on. If your knowledge of ancient finances is comparable to mine, that is to say approximately zero, please feel free to join me on a journey to learn a few details.

Wikipedia has some information about the Greek drachma which seems plausible. Will also mention some comment by Prof. Holt.

Comparable value

Article in Wikipedia says some economists and historians say one drachma in the 5th century (let me do a mental calculation – – that would be from about 499BC to 401BC) was about US$25 in 1990 or US$46.50 in 2015.

Classical historians give a different read for the 5th and 4th centuries (okay, mental math time, so that would be from around 499BC to 301BC, the 400s and 300s). In that time, one drachma would be around one days wages for a skilled worker or a hoplite. So that would not be minimum wage, but more along the line of a carpenter or mason.

Ancient finances, Alexander the Great chapter

Image: Flickr by Carole Raddato
Image: Flickr by Carole Raddato

Image: Flickr by Carole Raddato

The Wall Street Journal has a delightful review by James Romm:  Conqueror and Squanderer. The review is of The Treasures of Alexander the Great: How One Man’s Wealth Shaped the World by Frank Holt.

I have a growing interest in ancient finances. Try thinking about how to run a large operation, such as an empire or an army on campaign when there is no banking system and no means of storing wealth other than controlling territory or possessing gold or silver. There is no way to gain any sort of liquidity. Your ability to buy something is limited to the gold in your hand.

How you pay your army today here in the field or buy supplies for 20,000 troops when your wealth is in the form of tons of gold which is a two-month march behind you?

There are more issues revealed by the Panama Papers leaks than just tax evasion. Some contrarian opinions on how to look at offshore banking.

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

The primary focus in media coverage is on tax evasion. There are other ways to look at the offshore industry. There are more and deeper legal issues involved. The tax evasion concerns under discussion are just the starting point on the list of issues that ought to generate irritation.

Following articles provide a variety of alternative views of what is going on in the Panama Papers leaks. That the articles I mention contradict each other illustrates my point that there are more issues involved than just tax evasion.

4/7 – Jason Zweig at Wall Street Journal – Panama Papers: A History of Tax Evasion from Ancient Rome to the French Revolution to 19th-Century New Jersey

Question for you to ponder: Why have people been hiding their money for over 2,000 years?

In 1934 when Switzerland made it a crime for a banker to reveal a customer’s name, they were a bit behind the curve. Liechtenstein, Luxembourg, and Bermuda were tax havens a couple of decades earlier. As a depressing note, the Swiss offered confidentiality for a fee all the way back in 1789.

Why I am so optimistic – 3

The future is so bright we need sunglasses. Image courtesy of DollarPhotoClub.com
The future is so bright we need sunglasses. Image courtesy of DollarPhotoClub.com

The number of people working in manufacturing has been declining for many years. Those job losses will continue at the same time as technology disrupts other industries causing the loss of more jobs.

This is not a new concept. Technological advances have devastated farm employment over the last 150 years.

(Cross-post from my other blog, Nonprofit Update.)

Prof. Thomas Tunstall pondered Where the New Jobs Will Come From. Sub headline on his 11/4/15 article said:

In 2007 iPhone application developers didn’t exist. By 2011 Apple had $15 billion in mobile-app revenues.

Consider the percentage of the population employed in agriculture over time: …

Why I am so optimistic – 2

200 years ago subsistence agriculture was the norm across the planet. Photo courtesy of DollarPhotoClub.com
200 years ago brutal poverty was the norm across the planet. Not so today. Photo courtesy of DollarPhotoClub.com

Previously mentioned when I look at long-term economic trends I am incredibly optimistic. When I look at the headlines this morning or news from the political world, I am very discouraged.

(Cross-post from my other blog, Nonprofit Update.)

To see one illustration of why I am so optimistic for the long-term, check out a column by Glenn Reynolds at USA Today: Actually, things are pretty good / Free markets and free inquiry have changed the historic ‘norms’ of poverty and violence.

Earlier post summarized in one paragraph what caused this radical improvement.

Here are a final two points from the article I’d like to highlight:

Second, it is possible for us collectively to turn back history.

Why I am so optimistic – 1

200 years ago subsistence agriculture was the norm across the planet. Photo courtesy of DollarPhotoClub.com
200 years ago brutal poverty was the norm across the planet. Not so today. Photo courtesy of DollarPhotoClub.com

When I look at the political news or any news in general I get very pessimistic about our future.

In contrast, when I look at the amazing things happening beyond the headlines in today’s newspaper I feel incredibly optimistic.

Consider that private companies are developing the technology for space exploration. Consider the energy revolution created by hydraulic fracturing and horizontal drilling. Consider radical changes in technology that are making so many things easier, faster, and cheaper. Consider that anyone that wants to do so can publish their own book, distribute their own music, or create a feature movie.

As a tiny illustration, look at my company and pastimes. Technology allows me to run a high quality CPA practice without any staff. In my spare time I am a publisher and journalist. Anyone in Europe or North America or most of Asia could easily do the same and at minimal cost.

(Cross post from my other blog, Nonprofit Update.)

When I look at long-term economic trends I am incredibly optimistic.

For yet one more explanation of why that is the case, consider a column by Glenn Reynolds at USA Today: Actually, things are pretty good / Free markets and free inquiry have changed the historic ‘norms’ of poverty and violence.

Until relatively recently, an illness-filled short life of dirt-eating poverty was the normal condition for practically everybody on the planet. In the last 100 or 200 years life has gotten radically better for practically everyone.

The downside of government services. Postal delivery slowing. Hyperinflation.

image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Mail delivery slowing down in the U.S.

Inflation accelerating in Venezuela.

Slowing mail delivery is not just in your imagination….

8/26 – Washington Post – Post Office can’t even meet its own lower standards as late mail soars – The Post Office reduced its goals for delivery time on first class mail. Now an internal report shows a 50% jump in late delivery during 2015 even with the more lax standard. …

5 million views of a rap video on economics? Yeah. 5 million. On economics.

Over 5.1M views of the first video in the series and just a few more views to cross the 3M point for the second. Check them out for entertaining, creative ways of explaining the views of Hayek and Keynes. Great contrast between the two.

[youtube=https://www.youtube.com/watch?v=d0nERTFo-Sk]

 

[youtube=https://www.youtube.com/watch?v=GTQnarzmTOc]

 

Previously mentioned these videos here: …

Digital currencies are radical change on the horizon for banking and credit cards. (Radical change #2)

There is radical change all around us and more on the way. I know that. My blind spot is figuring out how that will affect my audit firm.

(Cross-posted from my other blog, Outrun Change.)

Here’s one part of radical change I can see on the horizon:

1-24 – Wall Street Journal – Bitcoin and the Digital-Currency Revolution / For all bitcoin’s growing pains, it represents the future of money and global finance.For a brain stretcher on digital currency, check out the article. Focus is on Bitcoin, which is merely the starting point in a revolution of disintermediation.

Just like money funds disintermediated (that means cut out of the picture) bank deposits in the distant ‘80s, bitcoin and other yet-to-be-invented digital currencies will disintermediate a huge portion of the financial system.

Picture the long series of transactions when you buy a cup of coffee at the corner shop with your credit card (this is a long quote cited under fair use, oh, also to promote the book it is extracted from): …

Knowledge is the source of value and wealth

Gotta’ question for you – How much does the economy weigh?

Can’t answer?

Okay. How ‘bout this – Does much does the economy weight today versus 1950?

Before you answer, consider that I just counted 220 books on the bookshelves in my office. I currently have 195 books on my Kindle.

Now, how much does the economy weight today compared to 60 years ago?